US and UK impose first wave of sanctions in response to Russian actions in Ukraine (and EU Sanctions to Follow)

Authored by our Global Sanctions, Export Controls and Customs Teams

Following Russia's recognition of the Donetsk and Luhansk Regions as independent, the US and UK moved swiftly to impose new sanctions against Russia in response to its deemed escalation of the ongoing crisis along the Russia-Ukraine border:

• On 21 February 2022, the United States issued an Executive Order prohibiting a broad range of transactions related to the Donetsk and Luhansk Regions and authorizing the United States to impose further sanctions on certain persons determined to operate in either region; and
• On 22 February 2022, the UK added five Russian banks and three Russian businessmen (Boris Rotenberg, Igor Arkadyevich Rotenberg, and Gennady Timchenko) to its asset freeze list. 

The EU has tabled a package of sanctions in response to the latest developments, which should be formally adopted in the coming days. 

US Issues Executive Order Prohibiting Transactions Related to the Donetsk and Luhansk Regions 

On 21 February 2022, President Biden signed an Executive Order (EO) prohibiting a broad range of transactions related to the Donetsk and Luhansk Regions (the "Covered Regions") and authorizing the United States to impose further sanctions on certain persons determined to operate in either region.¹

In connection with this action, the US Department of the Treasury issued six general licenses, including a short wind-down period through 12:01 am EDT on 23 March 2022 that authorizes certain activities that are now otherwise prohibited.

The Executive Order

The EO prohibits the following transactions:

• New investment in the Covered Regions (or any other region that may be named by the Secretary of the Treasury in consultation with the Secretary of State) by a US person,² wherever located;
• The direct or indirect importation into the United States of any goods, services, or technology from the Covered Regions;
•  The direct or indirect exportation, reexportation, sale, or supply from the United States, or by a US person, wherever located, of any goods, services, or technology to the Covered Regions; and
•  Any approval, financing, facilitation, or guarantee by a US person, wherever located, of a transaction by a foreign person that would be prohibited by the EO if performed by a US person.

This EO, like most sanctions EOs, also prohibits transactions that evade or avoid, have the purpose of evading or avoiding, cause a violation of, or attempt to violate any of the prohibitions set forth in the EO, including any conspiracy to violate any of the prohibitions.

The EO also authorizes blocking the property and interests in property of any person who is determined:

• To operate, or to have operated since 21 February 2022, in any of the Covered Regions;
• To be a leader, official, senior executive officer, or member of the board of directors of an entity operating in the Covered Regions;
• To be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to the EO; and
• To 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 and interests in property are blocked pursuant to the EO.

As with most blocking EOs, this EO authorizes the US Department of State to deny visas to those individuals whose property and interests in property are blocked pursuant to the EO.

All property and interests in property of persons determined to meet one or more of the above criteria, that are located in the United States or within the possession or control of a US person wherever located, are blocked and may not be dealt in.  Any entity in which one or more blocked persons hold in the aggregate, directly or indirectly, a 50 percent or greater ownership interest is itself blocked.  US persons may not engage in any dealings, directly or indirectly, with blocked persons or with any property in which blocked persons have any interest.  Provision of goods, services, or support for blocked persons is a criterion for potential future designation.

General Licenses

Also on 21 February 2022, the Department of the Treasury issued six general licenses authorizing transactions otherwise prohibited by the new EO.  The general licenses include the following limited authorizations for:³

• winding down of now-prohibited activities through 12:01 am EDT on 23 March 2022; 
• exports or reexports of agricultural commodities, food, medicine, and medical devices, as well as certain transactions related to COVID-19;
   
• transactions related to the receipt or transmission of telecommunications and mail;⁴
• transactions for the official business of certain international organizations, including the United Nations, the International Center for Settlement of Investment Disputes (ICSID), the Multilateral Investment Guarantee Agency (MIGA), the African Development Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank Group (IDB Group), the International Committee of the Red Cross, the International Federation of Red Cross and Red Crescent Societies, and the Organization for Security and Co-operation in Europe; 
• the processing of noncommercial, personal remittances⁵ and operation of personal accounts;⁶  and 
• exports of certain services and software incident to internet-based communications.

UK Imposes Asset Freeze on Russian Banks and Individuals

On 22 February 2022, UK Prime Minister Boris Johnson announced that the following Russian banks and individuals would be added to the UK’s list of designated persons subject to financial sanctions:⁷

• Banks: Bank Rossiya, Black Sea Bank for Development and Reconstruction, Genbank JSC, IS Bank, Promsvyazbank PJSC
• Individuals: Boris Romanovich Rotenberg, Igor Arkadyevich Rotenberg, Gennadiy Nikolayevich Timchenko
   

As a result of their designation, these persons are subject to a UK asset freeze (and for the individuals, a travel ban).  This means that all funds and economic resources that are owned, held or controlled by these persons, and that are under UK jurisdiction, must be frozen, and that no funds or economic resources can be made available (directly or indirectly) to or for the benefit of these persons, unless permitted by a license issued by HM Treasury. 'Economic resources' are broadly defined to include any assets that can be used to obtain funds, goods or services – for example, real estate assets.

Importantly, the asset freeze extends to entities that are owned or controlled (directly or indirectly) by these designated persons.  Under UK rules, the funds and economic resources of such entities must also be frozen, and funds and economic resources cannot be made available to such entities.

According to the UK government, the designated banks either operate in Crimea or – in the case of Promsvyazbank – are focused on providing banking services to the Russian defense industry.  The Prime Minister stated that these targeted designations constituted the first tranche of UK sanctions, and that depending on subsequent developments, further sanctions may be imposed.

EU Sanctions Expected Imminently

Following an EU statement on the evening of 21 February 2022 condemning Russia's recognition of the Donetsk and Luhansk Regions as independent,⁸ the EU is preparing a new package of sanctions targeting Russia in response. According to an EU statement released on 22 February 2022,⁹ the package should be adopted soon and will target:

• Persons involved in Russia's decisions to recognise as independent entities and send Russian troops to certain areas of Ukraine's Donetsk and Luhansk oblasts;
• Banks financing Russian military and other operations in the Luhansk and Donetsk Regions;
• The Russian government’s ability to access the EU's capital and financial markets and services; and
• Trade between Luhansk and Donetsk Regions and the EU.

The EU also noted that it has prepared and stands ready to adopt additional measures at a later stage if needed in the light of further developments.

The EU also adopted asset freeze measures against five individuals in relation to Crimea on 22 February 2022;¹⁰ however, these EU sanctions are unrelated to the developments in the Luhansk and Donetsk Regions.

On a related note, and while not formally a sanctions measure, the German Ministry of Economy (BMWK) announced on 22 February 2022 that it would halt the certification process for the Nord Stream 2 pipeline that would enable natural gas exports from Russia to Germany.¹¹  The pipeline has not begun its operations yet, but has been the subject of discussions in relation to the sanctions packages that the US, EU and UK may impose on Russia.

_{1 The full EO is available here. 
2 A US Person is defined to include any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.
3 A White House Fact sheet on these actions is available here, and the new licenses are available here.
4  This authorization does not extend to the provision, sale, or lease of telecommunications equipment or technology or the provision, sale, or lease of capacity on telecommunications transmission facilities (such as satellite or terrestrial network activity).
5 Noncommercial, personal remittances do not include charitable donations to or for the benefit of an entity or funds transfers for use in supporting or operating a business.  Transferring institutions may rely on the funds originator with regard to compliance for this provision.
6 Authorized operations of accounts only includes transactions that are of a personal nature and not for the benefit of an entity, including supporting or operating a business, and cannot involve transfers directly or indirectly into the Donetsk and Luhansk Regions.
7 See HM Treasury Notice of 22 February 2022 here.
8 See Press statement by President Charles Michel of the European Council and President Ursula von der Leyen of the European Commission of 21 February 2022 here.
9  See Press statement by the Presidents of the European Commission and the European Council on Russian aggression against Ukraine of 22 February 2022 here. 
10 See Council Implementing Regulation (EU) 2022/236 here; the designated individuals are Aleksei Yurievich CHERNIAK; Leonid Ivanovich BABASHOV; Tatiana Georgievna LOBACH; Nina Sergeevna FAUSTOVA; and Aleksandr Evgenevich CHMYHALOV.
11 See BMWK’s press release here, for now only available in German.}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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