Russian Sanctions and Export Controls Update

On February 21, 2022, President Biden issued an Executive Order (EO) imposing new sanctions and export controls in response to Russia’s formal recognition of the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine.

Background

The new U.S. sanctions and export controls came within hours after Russian President Vladimir Putin signed a decree to formally recognize the independence of the DNR and LNR — two separatist regions (known, collectively, as the Donbas) in eastern Ukraine. According to the White House, Russia’s decree “threatens the peace, stability, sovereignty, and territorial integrity of Ukraine” and “constitute an unusual and extraordinary threat to the national security and foreign policy of the United States.”

The EO prohibits the following:

• new investments by a U.S. person in the DNR, LNR or such other regions of Ukraine as may be determined by the U.S. Secretary of the Treasury (collectively, the “Covered Regions”);
• the importation into the U.S., directly or indirectly, of any goods, services or technology in the Covered Regions;
• the exportation, reexportation, sale or supply, directly or indirectly, from the U.S. or by a U.S. person wherever located, of any goods, services or technology to the Covered Regions; and
• any approval, financing, facilitation or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by the EO if performed by a U.S. person or within the United States.

The EO also authorizes “blocking” or “list-based” sanctions, freezing the assets of and virtually prohibiting any transactions with “any person” determined by Treasury:

• to operate or have operated since the date of this order in the Covered Regions;
• to be or have been since the date of the EO 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; or
• 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.

In conjunction with the EO, Treasury’s Office of Foreign Asset Controls (OFAC) announced the issuance of general licenses for certain affected transactions, including the winding down of certain investments in the Covered Regions (through March 23, 2022) and the export or reexport of certain commodities (e.g., medicine, medical devices) to the Covered Regions.

While no individuals or entities have been designated yet under this EO, this new EO effectively adds the Donbas region to the list of embargoed regions. Therefore, any imports from or exports to the region are prohibited unless authorized by one of OFAC’s general licenses.

Looking Ahead

After issuing the EO, the Biden administration made clear that the latest U.S. measures are “separate from and would be in addition to” the broader package of sanctions and export control measures that the U.S. and western allies are jointly preparing “should Russia further invade Ukraine.”

The same message was reiterated by U.K. Prime Minister Boris Johnson, who announced on February 22, 2022, a “first tranche” of sanctions targeting five Russian banks (Rossiya, IS Bank, General Bank, Promsvyazbank and the Black Sea Bank) and three “very high net worth” individuals (Gennady Timchenko, Boris Rotenberg and Igor Rotenberg).

The EU also announced that it will be finalizing a package that will target: (1) those who “were involved in the illegal decision” or “are financing Russian military and other operations” in the DNR and LNR; (2) the “ability of the Russian state and government to access the EU’s capital and financial markets and services, to limit the financing of escalatory and aggressive policies; and (3) trade from the DNR and LNR “to and from the EU.” Notably, in advance of the EU’s announcement, German Chancellor Olaf Scholtz also announced that Germany is halting certification of the Nord Stream 2 pipeline “at this point in time.”

Please note that we’ll continue to closely monitor this situation and provide timely updates, as warranted. In the meantime, please do not hesitate to reach out to a member of the Faegre Drinker customs and international trade team if you have any questions.