Alerts

Current State of U.S. Economic Sanctions Imposed on the Russian Federation and Covered Regions of Ukraine in Response to the Russia Federation's Invasion of Ukraine

Alerts / October 27, 2022

In response to the Russian Federation’s (Russia) egregious and unprovoked invasion of Ukraine that began in February 2022, the U.S. government has deployed a whole-of-government approach in imposing sanctions and export control restrictions on Russia. This Alert summarizes key economic sanctions imposed by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). It is not intended to be and is not a comprehensive summary of the economic sanctions implemented as a result of the invasion of Ukraine. Rather, this Alert is a tool to help companies, both U.S. and foreign, identify whether their business with Russia or Ukraine is now prohibited due to the wide-ranging economic sanctions, including import prohibitions, export prohibitions, and the designations of hundreds of individuals and entities as sanctioned or blocked persons.

The OFAC economic sanctions are generally complementary to the export controls imposed on Russia and Belarus by the U.S. Department of Commerce’s Bureau of Industry and Security in the Export Administration Regulations (EAR). The EAR governs the export, reexport, and transfers (in-country) of most items exported from the United States, U.S.-origin items wherever located, as well as certain foreign produced goods. For any transaction involving Russia, Ukraine, or Belarus, it is important to review both OFAC sanctions and the EAR conduct sanctioned person screening to determine whether a contemplated transaction is authorized. A summary of the current state of BIS export controls implemented in response to the Russian Federation’s invasion of Ukraine can be found here.

This summary covers the following topics:

I.    Overview of OFAC Economic Sanctions Regulations Relating to Russia
A.    Russian Harmful Foreign Activities Sanctions 
B.    Ukraine-/Russia Related Sanctions Regulations 

II.    OFAC Restrictions on Doing Business in Ukraine
Imposition of embargo on Donetsk and Luhansk People’s Republic Regions of Ukraine

III.    Import Restrictions on Goods from Russia or that are of Russian-Origin
A.    Import ban on crude oil, petroleum, and related energy products
B.    Import ban on items from key sectors (e.g., seafood, alcohol, and non-industrial diamonds)

IV.    Restrictions on the Export of Services to Russia
Export ban on accounting services, trust and corporate formation services, quantum computing and management consulting services

V.    Restrictions Regarding Financial Institutions, Financial Transactions, and Related Transactions with Russia
A.    Investment prohibition
B.    Prohibition relating to U.S. denominated banknotes
C.    New debt and equity restrictions
D.    Designations of financial institutions, and executives and board members of financial institutions as Specially Designated Nationals (SDNs)  

VI.    Further Specially Designated National and Blocked Person Designations
Additional SDNs designations, including oligarchs, Russian elites, TV stations, and key industry entities 

I. Overview of OFAC Economic Sanctions Relating to Russia

The economic sanctions relating to the Russian invasion of Ukraine are being implemented through two programs: the Ukraine-/Russia-related Sanctions program and the Russian Harmful Foreign Activities Sanctions program. OFAC also maintains sanctions against Russia under the Magnitsky Sanctions program and the Countering America's Adversaries Through Sanctions Act of 2017 (CAATSA), but these programs have not been deployed in response to the 2022 invasion.

As a general rule, OFAC’s economic sanctions against Russia apply to U.S. citizens (wherever located), U.S. permanent residents (“green card” holders) (wherever located), entities formed in the United States, including their foreign branches, and anyone (including entities) located in or otherwise subject to the jurisdiction of the United States (regardless of citizenship).

A. Ukraine-/Russia Related Sanctions

The Ukraine-/Russia sanctions include the sanctions that were implemented in March 2014 in response to E.O. 13660, which declared a national emergency to deal with the threat posed by Russia to the security, stability, and sovereignty of Ukraine, including the annexation of the Crimea region by Russia. In addition to the restrictions set forth in E.O. 13660, the Ukraine Sanctions implement the restrictions set forth in three subsequent 2014 E.O.s: E.O. 13661 (March 16, 2014), E.O. 13662 (March 20, 2014), and E.O. 13685 (December 19, 2014). As discussed in part II, below, this program also includes the first Executive Order addressing the 2022 invasion (E.O. 14065), as well as the Ukraine-/Russia Related Sanctions Regulations, which are codified at 31 C.F.R. Part 589, and approximately 25 general licenses have been issued authorizing certain transactions that would be prohibited under these sanctions (more than ½ of which have expired), as well as numerous FAQs and other guidance.

Select provisions of the Ukraine Sanctions are outlined in part II, below. For more information on the Ukraine-/Russia Related Sanctions, see the OFAC page on the Ukraine-/Russia Related Sanctions, Amendment to the Ukraine-Related Sanctions Regulations and Associated Administrative List Updates, and OFAC’s FAQs on the Ukraine Sanctions.

B. Russian Harmful Foreign Activities Sanctions

The Russian Harmful Foreign Activities Sanctions program began in 2021 with the issuance of Executive Order (E.O.) 14024, and the Russian Harmful Foreign Activities Sanctions Regulations (RuHSR) were issued in May 2022. The RuHSR, which are codified at 31 CFR Part 587, implement the restrictions set forth in E.O. 14024 and will incorporate any subsequent legal prohibitions or restrictions in Executive Orders issued pursuant to the national emergency in E.O. 14024. In E.O. 14024, the President declared an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States due to the Russian Government’s efforts to undermine the democracy of the United States and its allies and partners, Russia’s “malicious cyber-enabled activities against the United States and its allies and partners” and Russia’s violations of “well-established principles of international law.” To supplement the RuHSR, OFAC issued four directives in 2022 which set forth additional restrictions regarding financial transactions relating to Russia (see part V, below). Under this program, OFAC also issued three additional Executive Orders in 2022 (discussed in parts III and VI, below), as well as numerous general licenses, FAQs, and other guidance. As of October 21, 2022, there were 29 active General Licenses which include authorizations for agricultural commodities and medicine, telecommunications, activities by nongovernmental organizations, overflight payments, emergency landings and air ambulance services, civil aviation safety, transactions related to certain agricultural equipment, certain transactions involving Russia’s Federal Security Service, and other support to people impacted by Russia’s further invasion of Ukraine.

Select provisions of the Russian Harmful Foreign Activities Sanctions program are outlined below. For more information on the Russian Harmful Foreign Activities Sanctions program, see OFAC’s Russian Harmful Foreign Activities Sanctions page and OFAC’s Russian Harmful Foreign Activities Sanctions FAQ page.

II. OFAC Restrictions on Doing Business in Ukraine

As a result of the February 2022 invasion of Ukraine and Russia gaining control of the Donetsk and Luhansk People’s Republic Regions of Ukraine (DNR and LNR regions, respectively), the United States imposed an embargo on the DNR and LNR regions. Specifically, on Monday, February 21, 2022, President Biden issued an Executive Order prohibiting “United States persons” from engaging in new investment in the DNR and LNR regions, as well as engaging in trade, including export, import, reexport, sale or supply, of goods, services or technology with, the DNR and LNR regions. The embargo on the DNR and LNR regions is the same as the U.S. embargo on the Crimea region of Ukraine.

As a result, all U.S.-origin items (other than food and medicine designated as EAR99 and certain software and Internet-based personal communications) require a license to go to the DNR or LNR region. Also, U.S persons, wherever located, are prohibited from approving, financing, facilitating or guaranteeing transactions by foreign persons that cannot be performed by U.S persons as a result of the Executive Order. Licenses from both BIS and OFAC may be needed for any export, reexport, or transfer (in-country) and related transactions involving the LNR or DNR regions.

OFAC issued eight general licenses to Executive Order 14065 (18 to 25) authorizing certain transactions with the DNR region and LNR region, mainly for humanitarian reasons, that would have otherwise been prohibited under the Ukraine Sanctions. For example, General License 18 authorizes “exportation or reexportation of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices, or software updates for medical devices,” as well as “the prevention, diagnosis, or treatment of COVID-19.” General License 20 authorizes transactions “for the conduct of the official business of certain international organizations and entities.” General License 23 authorizes transactions that related to “the support of nongovernmental organizations’ activities in the Covered Regions, including activities related humanitarian projects to meet basic human needs, democracy building, education, non-commercial developments projects, and environmental and natural resource protection.”

For further information, see February 21, 2022 Issuance of Executive Order Blocking Property Of Certain Persons And Prohibiting Certain Transactions With Respect To Continued Russian Efforts To Undermine The Sovereignty And Territorial Integrity Of Ukraine; Issuance of Ukraine-related General Licenses; White House Fact Sheet; FAQ 1007; and February 21 BakerHostetler Alert.

III. Import Restrictions on Russian Federation Origin or Goods from the Russian Federation

A number of import restrictions have been imposed on goods from the Russian Federation or goods that are of Russian origin. These restrictions include an import ban on crude oil, petroleum, energy products, and gold, as well as a ban on certain items from key Russian sectors.

A. Import Ban on Crude Oil, Petroleum, and Energy Products

As of March 8, 2022, pursuant to E.O. 14066, imports into the United States of Russian Federation origin crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products are prohibited.

B. Import Ban on Items from Key Sectors

As of March 11, 2022, pursuant to E.O. 14068, imports of Russian Federation origin goods from several notable sectors of the Russian economy, including fish, seafood, and preparations; alcoholic beverages; and non-industrial diamonds, are prohibited. Goods of Russian Federation origin include goods produced, manufactured, extracted, or processed in the Russian Federation that have not been incorporated or substantially transformed into a foreign-made product.

Based on FAQs 1016 and 1024, the import bans do not extend to U.S. persons engaging in transactions to sell or re-direct shipments of goods covered by the import ban outside the United States that were previously destined for the United States.

OFAC has not issued clear guidance on how theories of incorporation or substantial transformation may impact the ban for goods of Russian Federation origin. Country of origin determinations are the purview of U.S. Customs and Border Protection (U.S. Customs) regulations and guidelines and may offer some guidance for the purposes of OFAC’s ban on Russian Federation origin goods.

For more information on the crude oil and energy products import ban, see OFAC Press Release, OFAC FAQs, and the BakerHostetler client alert. For more information on the notable sector import ban, see the BakerHostetler Alert and OFAC FAQs

C. Import Ban on Gold

As of June 28, 2022, pursuant to a determination issued under E.O. 14068, imports of newly mined or refined gold of Russian origin are prohibited, unless licensed or otherwise authorized by OFAC. The determination excluded gold of Russian origin that was located outside of the Russian Federation prior to the effective date. 

IV. Restrictions Imposed on the Export of Services to Russia

On May 8, pursuant to Executive Order (E.O.) 14071, OFAC issued a determination which prohibited the export of certain professional services to Russia. The scope of the prohibition covers accounting, trust and corporate formation, and management consulting services and the prohibitions took effect on June 7, 2022.

On September 15, pursuant to E.O. 14071, OFAC issued another determination prohibiting the provision of professional services related to quantum computing. OFAC has broadly defined the scope of all concerned services as follows:

  • “Accounting services” – includes “services related to the measurement, processing, and transfer of financial data about economic entities.”
  • “Trust and corporate formation services” – includes “services related to assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for other persons to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts.”
  • “Management consulting services” – includes “services related to strategic advice; organizational and systems planning, evaluation, and selection; marketing objectives and policies; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.”  
  • “Quantum computing” – includes “any of the following services when related to quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing:  infrastructure, web hosting, or data processing services; custom computer programming services; computer systems integration design services; computer systems and data processing facilities management services; computing infrastructure, data processing services, web hosting services, and related services; repairing computer, computer peripherals, or communication equipment; other computer-related services; as well as services related to the exportation, reexportation, sale, or supply, directly or indirectly, of quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing to any person located in the Russian Federation.”

OFAC has provided additional guidance on the prohibition of services in numerous of FAQs for each category: accounting, corporate, management, and quantum computing. These prohibitions will not apply to services provided to entities in Russia that are owned or controlled by a U.S. person or to services provided in connection with the wind down or divestiture of an entity located in Russia that is not owned or controlled by a Russian person. 

Restrictions on the provision of maritime services in connection with transportation of seaborne Russian oil pursuant to E.O. 14071 are expected to take place in the coming months. OFAC’s preliminary guidance indicates that services provided for maritime transportation of seaborne Russian oil will be permitted if the seaborne Russian oil is purchased at or below the price cap. Any seaborne Russian oil purchased above the price cap cannot be serviced by U.S. maritime transportation providers, brokers, and financial institutions. The price cap is not set and OFAC anticipates publishing additional guidance once participating nations have further deliberated.

For more information on the aforementioned bans, see the OFAC press release, OFAC Recent Actions webpage, and OFAC FAQs.

V. Restrictions regarding Financial Transactions, Financial Institutions and Related Transactions

Numerous restrictions have been implemented regarding transactions with financial institutions in Russia as well as prohibitions regarding financial transactions with entities in Russia, including those for the benefit of certain sectors of the Russian economy. These restrictions include:

A. Investment Prohibition

As of April 6, 2022, pursuant to E.O 14071, U.S. persons, wherever located, are prohibited from making any new investment in the Russian Federation. While investment was not defined in E.O 14071, based upon prior OFAC guidance, new investment includes any commitment or contribution of funds or other assets for, or “any transfer or extension of funds or credit on the basis of an obligation to repay, or any assumption or guarantee of the obligation of another to repay an extension of funds or credit, including: overdrafts, currency swaps, purchases of debt securities, purchases of a loan made by another person, sales of financial assets subject to an agreement to repurchase, renewals or refinancing whereby funds or credits are transferred or extended to a borrower or recipient described in the provision, the issuance of standby letters of credit, and drawdowns on existing lines of credit.”  

Initially, the investment ban was limited to new investment in the energy sector but as of April 6, it was expanded to prohibit new investment into any sector of Russia.

For more information see Background Press Call by Senior Administration Officials on New Economic Costs on Russia.

B. U.S. Denominated Banknotes 

Effective March 11, the export and reexport of U.S. dollar-denominated banknotes to the Russian Government or any person located in Russia is prohibited. Pursuant to General License 18, certain noncommercial personal remittances are authorized, including withdrawals of U.S. dollar-denominated banknotes via automated teller machines and the hand carrying of U.S. dollar-denominated banknotes. For further information, see also OFAC FAQ re Dollar-Denominated Banknotes.

C. New Debt and Equity Restrictions

As discussed below, effective February 24, 2022, pursuant to Executive Order 14024, OFAC Directive 3 prohibits all transactions in, provision of financing for, and other dealings in new debt of greater than 14 days maturity and new equity issued by thirteen Russian state-owned enterprises and entities. 

For further information, see White House Fact Sheet, OFAC FAQs, and OFAC Recent Actions page.

D. Prohibitions and Blocking Requirements Relating to Financial Institutions

The designation of financial institutions, as well as executives and board members of financial institutions, as Specially Designated Nationals (SDNs) has been a popular and powerful sanction measurement imposed by OFAC. U.S. persons are prohibited from engaging in any business with an SDN and must freeze an SDN’s property and interests in property in the United States or in the U.S. person’s possession. An SDN designation is the most restrictive U.S. sanctioned person designation.  An SDN is an individual or entity listed on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List) or an entity that is owned 50% or more, individually or in the aggregate, by an SDN.

In just the financial sector, OFAC has imposed:

a. SDN designations with full blocking restrictions on:

  1. Sberbank and 42 of its subsidiaries
  2. VTB Bank Public Joint Stock Company (VTB Bank) and 20 of its subsidiaries
  3. Joint Stock Company Alfa-Bank (Alfa-Bank), 6 of its subsidiaries, and 5 vessels
  4. State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and 25 of its subsidiaries
  5. Promsvyazbank Public Joint Stock Company (PSB), 17 of its subsidiaries, and 5 vessels
  6. Public Joint Stock Company Bank Financial Corporation Otkritie (Otkritie) and 12 of its subsidiaries
  7. Open Joint Stock Company Sovcombank (Sovcombank) and 22 of its subsidiaries
  8. Joint Stock Commercial Bank Novikombank (Novikombank) and 34 of its subsidiaries
  9. Joint Stock Company Moscow Industrial Bank (MIB) and 10 of its subsidiaries 

b. SDN designations of Russian state-owned and private financial institutions’ executives and board members: 

  1. Certain board members of Sberbank 
  2. Certain board members of Gazprombank (GPB) 
  3. Certain governors of the Central Bank of the Russian Federation

c. Prohibited dealings of new debt and equity (per Directive 3 under E.O. 14024) in:

  1. Credit bank of Moscow public joint stock company
  2. Gazprombank joint stock company
  3. Joint stock company Alfa-bank
  4. Joint stock company Russian Agricultural Bank
  5. Joint stock company Sovcomflot
  6. Open joint stock company Russian railways
  7. Public joint stock company Alrosa
  8. Public joint stock company Gazprom
  9. Public joint stock company Gazprom Neft
  10. Public joint stock company Rostelecom
  11. Public joint stock company Rushydro
  12. Public joint stock company Sberbank of Russia
  13. Public joint stock company Transneft

d. ​​​​​​Prohibited transactions (with Non-SDN Menu-Based Sanctions (NS-MBS) List):

  1. Central Bank of Russia 
  2. Russian Ministry of Finance 
  3. National Wealth Fund 

These designations “target nearly 80 percent of all banking assets in Russia.” They are separate and apart from any designations, sanctions, or license requirements imposed by BIS. 

For more information, see the February 23, 2022 BakerHostetler Alert and the March 1, 2022 Baker Hostetler Alert and links set forth below under Additional SDN Designations.

To screen for sanctioned persons, you may use the free online U.S. Government Screening Tool.

VI. Additional SDN Designations by OFAC

As of October 20, 2022, OFAC has designated over 1,150 individuals and over 1,240 entities related to Russian and Ukrainian sanctions as SDNs, and that number does not include entities that are owned 50% or more, individually or in the aggregate, by an SDN, which, pursuant to OFAC guidance, must be treated as SDNs. Recent additions over the last few months include weapons manufacturer Limited Liability Company Promtekhnologiya (Promtekhnologiy), state-controlled television stations (Russia-1, Channel One, and NTV, all of which are directly or indirectly state-owned and controlled media within Russia), truck manufacturer KAMAZ Publicly Traded Company and its subsidiaries, and many other distributors, manufacturers, and state-owned enterprises involved in the Russian military industrial complex. These designations supplement the hundreds of other designations, including those affecting government officials, oligarchs, and entities that support Russia’s war fighting efforts against Ukraine.

On September 15, 2022, OFAC designated additional facilitators of Russian aggression. These new additions to the SDN List comprise of 22 individuals and two entities that have furthered the objectives of the Russian government by supplying arms, financing, or direct involvement in military operations.

Shortly after the purported annexation of four Ukrainian regions, on September 30, 2022, OFAC designated 14 persons in Russia’s military industrial complex, three influential leaders involved in Russia’s financial sector, and 278 members of Russia’s legislature. Since then, OFAC has continued to target Russian military technology procurement networks in its most recent action on October 19, 2022.

For more information, see OFAC October 19, 2022 Targeting Military Procurement Operatives, OFAC September 30, 2022 Announcement of Response to Ukraine Annexation, OFAC September 15, 2022 Announcement Targeting Facilitators of Russian Aggression, OFAC August 2, 2022 Announcement Sanctioning Elites and Revenue Generating Companies for Russian War Effort, OFAC June 28, 2022 Announcement Regarding SDN Designations, OFAC April 6, 2022 Announcement Regarding SDN Designations, Russia-related Designations and Designations Updates; Issuance of Russia-related General Licenses, OFAC March 31 Announcement, OFAC March 24 Announcement, OFAC Announcement of February 25, and OFAC Announcement of February 24.

To ensure that you do not engage in business with an SDN or other sanctioned party, it is essential that each party to the transaction, including all potential end-users and intermediaries, are screened against OFAC’s SDN List and other applicable U.S. sanctioned persons lists, which may include BIS’s Entity List and BIS’s List of Denied Persons. As a best practice, sanctioned person screening should be done at the time the order comes in/negotiations begin, before engaging in the transaction, and before shipping. Dynamic screening is recommended to ensure that dealings do not occur between screenings. Penalties for violations of the OFAC economic sanctions may be imposed on a strict liability basis. You also should verify that no party to a transaction is owned 50% or more, individually or in the aggregate, by an SDN.

To screen for sanctioned persons, you may use the free online U.S. Government Screening Tool.

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