Updated as of April 12, 2022
It has now been more than 40 days since the start of Putin’s brutal invasion of Ukraine. Today, following the recent revelations of the atrocities committed in Bucha, Ukraine by Russian armed forces, the United States – in coordination with the G7 and the EU – imposed new sanctions on Russia (see here). The sweeping new sanctions seek to further restrict Russia’s access to dollars and put economic pressure on Putin to end the war. The sanctions include a ban on all new investment in Russia as well as designations of Russia’s largest financial institutions (i.e., Sberbank and Alfa Bank), critical state-owned enterprises, and Russian government officials and their family members, including Putin’s children.
In addition, OFAC yesterday sanctioned the world’s largest—and Russia’s most prominent— darknet market, Hydra Market (Hydra), and virtual currency exchange Garantex (see here). According to OFAC, Hydra’s offerings have included ransomware-as-a-service, hacking services and software, stolen personal information, counterfeit currency, stolen virtual currency, and illicit drugs. OFAC also sanctioned over 100 virtual currency addresses associated with Hyrdra’s operations, which have been used to conduct illicit transactions (see here). For its part, Garantex is an Estonian virtual currency exchange that allows customers to buy and sell virtual currencies using fiat currencies, with its majority of operations carried out in Russia. Garantex joins other cryptocurrency exchanges – SUEX and Chatex – sanctioned by OFAC over the last few months (see our discussion of those sanctions, here and here).
Today’s announcement of sanctions against Russia come on the heels of the Treasury Department’s decision on Monday to prohibit Russia from paying holders of its sovereign debt more than $600 million from reserves held at U.S. banks. As a result, Russia will either have to default on its debt payments or use other government funds –either from existing dollar reserves in Russia or using other revenue – to make these payments.
Since the Ukraine conflict unfolded and the passage of multilateral sanctions from the United States and over 30 allies across the world, more and more companies are announcing an exit from Russia completely and ceasing all business in the country. The White House estimates that over 600 private companies have left the Russian market (see here).
Overview of the New U.S. Sanctions
- Prohibitions on New Investments in Russia: U.S. persons (i.e., companies and individuals) wherever located will be prohibited from making any new investment in Russia (see here).
- Designations of Sberbank and Alfa Bank: The designation of Sberbank, including 42 Sberbank subsidiaries, and Alfa Bank, including six subsidiaries and five vessels, as Specially Designated Nationals (SDNs) effectively cuts them off from any activity involving a U.S. person or U.S. Bank (see here). Both banks were previously subject to sanctions falling short of SDN designations. The designation of Sberbank and Alfa Bank, as well as their subsidiaries, join other major Russian Banks that were blocked from the U.S. financial system, including VEB, Promsvyazbank (PSB), VTB Bank, Otkritie, Sovcombank, and Novikombank (see our prior post about these designations here). In conjunction with the designations, OFAC updated and issued general licenses authorizing certain transactions involving Sberbank and Alfa Bank (among others), including certain energy-related transactions, related to derivative contracts, and transactions ordinarily incident and necessary to wind down transactions.
- Designations of Critical Major Russian State-Owned Enterprises: Similar to the designations of Sberbank and Alfa Bank, the SDN designations of critical Russian SOEs will prohibit any U.S. person from conducting any transactions with these SOEs. On April 7, 2022, OFAC designated Russia’s largest diamond mining company, Public Joint Stock Company Alrosa (Alrosa), and Russia’s largest warship manufacturer, Joint Stock Company United Shipbuilding Corporation (USC) along with its subsidiaries and board members (see here).
- Designations of Russian Government Officials and their Family Members: Among those designated are Putin’s adult children, Foreign Minister Lavrov’s wife and daughter, and members of Russia’s Security Council including former President and Prime Minister of Russia Dmitry Medvedev and Prime Minister Mikhail Mishustin.
Overview of the New EU Sanctions
The new sanctions include, among other things:
- Ban on the Import of Coal. Beginning in August 2022, the purchase, import into the EU or transfer of coal and other solid fuels originating from or exported from Russia will be prohibited. This prohibition will have a big impact on Russian coal exports and be tantamount to an approximate EUR 8 billion loss of revenue per year for Russia.
- Transport Restrictions. Russian and Belarus operators are prohibited to transit and transport goods by roads within the EU. Pharmaceutical, medical, agricultural and food products are exempted as well as road transport for humanitarian aid. Further, on April 16, the access to EU ports will be limited to Russian registered vessels. There are exemptions on agricultural and food sectors, humanitarian aid, and energy.
- Financial Measures. Deposits from a Russian legal or natural person, or from a person residing in Russia shall not be accepted by European banks if they exceed EUR 100,000. The provision of crypto-wallets is also subject to a prohibition if the amount exceeds EUR 10,000. In addition, the sale of transferrable securities and/or banknotes cannot be denominated in the official currencies of the EU Member States to Russia and Belarus.Further, four key Russian banks are now subject to a full transaction ban: Otkritie FC Bank, Novikombank, Sovcombank and VTB Bank. These banks represent 23% of the market share in Russia.
- Public Procurement Ban. Russian individuals or entities are excluded from European public contracts. They are also banned from participating in public procurement in Member States, and the financial support to Russian public bodies is prohibited.
- Export Bans. The EU has also decided to prohibit the sale, supply, transfer or export, directly or indirectly, of goods which could contribute in particular to the enhancement of Russian industrial capacities as listed in Annex XXIII of Regulation 2022/576, to any natural or legal person, entity or body in Russia or for use in Russia. Standard prohibitions on the provision of technical or financial assistance apply as well. Goods included in Annex XXIII, include, inter alia, chemicals such as hydrogen, nitrogen, oxygen, silicon, arsenic and many more chemicals, substances and products, listed by HS codes.
Those new restrictions do not apply to the execution of contracts concluded before April 9, 2022, until July 10, 2022. Goods which are necessary for the official purposes of diplomatic or consular missions of Member States or partner countries in Russia or of international organizations enjoying immunities in accordance with international law, or to the personal effects of their staff, are also exempted from these new prohibitions.
Further, national authorities may grant licenses for the sale, supply, transfer or export of the goods and technology listed in Annex XXIII, if such transactions are necessary for humanitarian purposes.
- Import Bans. The new regulations also include a prohibition on the purchase, import, or transfer, directly or indirectly, of goods which generate significant revenues for Russia, as listed in Annex XXI of Regulation 2022/576, into the EU if they originate in Russia or are exported from Russia. Standard prohibitions on the provision of technical and financial assistance apply as well. Various types of products are covered such as wood, cement, seafood, liquor.
- New Asset Freeze Designations. Council Regulation (EU) 2022/581 has added an additional 216 individuals and 18 entities to the EU sanctions list. This includes Russian oligarchs, family members of previously sanctioned individuals, adult daughters of Vladimir Putin, Maria Vorontsova and Ekaterina Tikhonova, CEO of Sberbank Russia German Gref, all 179 members of the so-called “governments” and “parliaments” of Donetsk and Luhansk. Listed entities include, among others: JSC Arzamas Machine-Building Plant, JSC Ruselectronics, JSC Tactical Missiles Corporation (KTRV), JSC Kalashnikov Concern, etc.
On April 5, 2022, the EU Commission published Guidance on investments from Russia and Belarus. Its aim is to help EU Member States to assess and prevent threats from investments that could be influenced by Russia or Belarus. The Guidance calls for a comprehensive investment screening elaborated by the EU Member States.
Overview of the New UK Sanctions
The UK also imposed a fifth round of sanctions to suspend transactions in key Russian sectors. The aim is to put an end to the UK’s dependency on Russian energy.
On April 6, 2022 the UK Foreign Secretary published a Press Release, which outlines different bans on various sectors:
- Imports on coal and oil and end-import gas will be prohibited by the end of 2022, and export of oil refining equipment will be banned;
- Prohibition on new investments to Russia;
- Import ban on iron and steel products, which will impact the Russian industry and state- owned enterprises.
The Office of Financial Sanctions Implementation (OFSI) listed key Russian banks that are now subject to UK sanctions. The list of entities subject to asset freezes have been extended, and banks and entities close to President Putin are designated, as follows:
- Credit Bank of Moscow
- Pjsc Sberbank
- United Aircraft Corporation
- Vtb Bank