U.S. Announces Next Round of Tougher Sanctions and Export Controls in Response to Russian Invasion of Ukraine

5 min

This is part of a series of advisory alerts from Venable in response to the ongoing situation in Ukraine. An earlier alert on Russia and Ukraine sanctions is available here.

The United States, along with the European Union, the United Kingdom, and other allies, has announced a new round of significantly tougher sanctions and export controls in response to the expanding Russian military invasion of Ukraine. These new measures are intended to weaken Russian economic and military capabilities by blocking Russian access to key technologies and infrastructure, financial markets, and global trade.

The latest U.S. actions announced by President Biden on Thursday, February 24, 2022, include the following:

Additional Sanctions on Five Major Russian Banks

With Directive 2 under Executive Order 14024, the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC), is prohibiting U.S. banks from opening or maintaining correspondent and payable-through accounts for or on behalf of Russia's largest bank, Public Joint Stock Company Sberbank of Russia ("Sberbank"), and 25 of its subsidiaries. This ban effectively prohibits Sberbank from conducting transactions in U.S. dollars or with U.S. financial institutions, and will be effective beginning March 26, 2022.

OFAC also imposed blocking sanctions on Russia's second largest bank, VTB Bank, adding it and 20 of its subsidiaries to the Specially Designated Nationals and Blocked Persons List (SDN List). This action freezes all of VTB's assets in the United States and prohibits U.S. persons and entities from any transactions with VTB. OFAC also imposed blocking sanctions on three additional major Russian financial institutions, Otkritie, Novikombank, and Sovcombank.

On Thursday, Prime Minister Boris Johnson announced that the United Kingdom will impose similar blockades and asset freezes on major Russian banks, including some of those listed above.

Expanded Debt and Equity Restrictions Against Russian Entities

OFAC also issued Directive 3 under Executive Order 14024, which prohibits U.S. persons or U.S.-based entities from transacting or dealing in new debt (of more than 14 days' maturity) and new equity in connection with 13 named Russian entities, including six of Russia's largest financial institutions and other large companies significant to Russia's energy, telecommunications, and transportation sectors. These measures are intended to prevent major Russian companies and banks with close ties to the Kremlin from raising capital and revenues in the U.S. market.

New Export Controls Targeting Russian Military and Technological Capabilities

President Biden also announced major restrictions on the exports of certain U.S. products to cut off Russian access to crucial technologies in the defense, aerospace, and maritime sectors. Concurrently, the Department of Commerce's Bureau of Industry and Security (BIS) announced new licensing requirements for many controlled items destined for Russia, including semiconductors, computers, telecommunications, information security equipment, lasers, and sensors.

In its new rule, BIS also expanded the scope of existing Russia "military end use" and "military end user" controls to encompass nearly all items subject to the Export Administration Regulations (EAR). This effectively prevents exports of U.S.-origin items and other items subject to U.S. jurisdiction from ending up in Russian military end user hands. It also means additional due diligence obligations on the part of companies scrambling to comply with the new restriction.

Additionally, BIS also added 49 new Russian military end users to its Entity List and expanded its Foreign Direct Product (FDP) rules to restrict Russian access to certain foreign-produced items that contain or are produced as a result of U.S.-origin software or technology. The EU, Japan, Australia, United Kingdom, Canada, and New Zealand have also announced similar export control restrictions, which the White House estimated could collectively block more than $50 billion in key inputs to Russia.

New Sanctions on Russian and Belarusian Actors

OFAC also added numerous Russian political and financial elites with close ties to President Putin to the SDN List. According to the White House, this action targets "individuals who have enriched themselves at the expense of the Russian state" and "cuts them off from the U.S. financial system, freezes any assets they hold in the United States and blocks their travel to the United States."

Relatedly, to impose costs on Belarus for supporting Russian aggression in Ukraine, OFAC also introduced new sanctions against 24 Belarusian individuals and entities, including two Belarusian state-owned banks, Belarussian Bank of Development and Reconstruction Belinvestbank Joint Stock Company and Bank Dabrabyt Joint-Stock Company, and nine entities in the defense and materiel sectors.

New General Licenses and FAQS

OFAC also issued eight new General Licenses accompanying the various new sanctions and updated and added to its FAQs. For example, these General Licenses authorize a range of transactions related to international organizations, humanitarian and medical assistance, aviation, energy, and the wind-down of transactions involving certain blocked persons and entities until March 26, 2022. These General Licenses should be carefully reviewed by any party that may be affected by the new sanctions.

Looking Forward

The situation remains extremely fluid at the moment, and additional measures should be expected as President Biden and allied leaders continue coordinating a joint response to Russia's aggression. As the U.S. response unfolds, we strongly encourage companies operating in Europe to closely monitor developments in the region and take stock of potential touchpoints in Russia, Ukraine, and Belarus that may be impacted by new sanctions, export controls, or trade embargoes.

Venable's International Trade and Logistics Group is carefully monitoring the situation and will continue to provide updates as information becomes available. If you have any questions, please reach out to our team for guidance.