Russian Financial Sector Sanctions: A Summary

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Authors: Mollie D. Sitkowski , James Ellis-Rees

The international sanctions targeting the Russian Federation include significant financial sanctions against Russian banks. We’re monitoring these actions and have created a summary of financial sanctions against Russian banks as of March 9, 2022.¹

Restrictions on Russian Banks

Sanctioned Bank	U.S.²	U.K.³	EU⁴	JAPAN	EU SWIFT Prohibition⁵
Alpha-Bank (Alfa-Bank)	U.S. debt and equity restrictions pursuant to Directive 3⁶		EU capital markets restrictions⁷		No
Bank Otkritie Financial Corporation PJSC	Specially Designated National (SDN).⁸ There is a wind down license allowing certain transactions through March 26, 2022.	Asset freeze	EU capital markets restrictions	Asset freeze	Yes
Credit Bank of Moscow	U.S. debt and equity restrictions pursuant to Directive 3.				No
IS Bank		Asset freeze			No
Black Sea Bank for Development and Reconstruction		Asset freeze			No
Gazprombank	U.S. debt and equity restrictions pursuant to Directive 3 and Directive 1 of EO 13662⁹		EU capital markets restrictions	Restriction on the issuances of securities	No
JSC GenBank		Asset freeze			No
Novikombank	SDN and U.S. debt and equity restrictions pursuant to Directive 3 of EO 13662. There is a wind down general license allowing certain transactions through March 26, 2022.			Asset freeze	Yes
PJSC Promsvyazbank	SDN	Asset freeze	Asset freeze + EU capital markets restrictions	Asset freeze	Yes
JSC Rosselkhozbank (aka Russian Agricultural Bank)	U.S. debt and equity restrictions pursuant to Directive 1 and Directive 3 of EO 13662	U.K. capital markets restrictions	EU capital markets restrictions	Restriction on the issuances of securities	No
Bank Rossiya	SDN	Asset freeze	Asset freeze + EU capital markets restrictions	Asset freeze + pre-approval of (i) payment to and (ii) capital transactions (i.e., deposit, trust, and loan agreement) between 24 individuals of the two separatist regions and Bank Rossiya	Yes
Sberbank	U.S. debt and equity restrictions pursuant to Directive 1 and Directive 3 of EO 13662. Also subject to Directive 2 of EO 14024.¹⁰	Prohibitions on correspondent banking and sterling clearing, in line with U.S. restrictions on Sberbank. There is a wind-down period until June 24, 2022, which allows U.K. financial institutions to continue processing GBP payments to/from Sberbank and its subsidiaries where the payments relate to energy products (e.g., crude oil, petroleum products, and gas) for use in the U.K.	EU capital markets restrictions	Restriction on the issuances of securities	No
Sovcombank	SDN. There is a wind down general license allowing certain transactions through March 26, 2022.	Asset freeze		Asset freeze	Yes
VNESHECONOMBANK (VEB) (aka Bank for Development and Foreign Economic Affairs)	SDN and Directive 1 of EO 13662.	Asset freeze	Asset freeze + EU capital markets restrictions	Asset freeze + Restriction on the issuances of securities	Yes
VTB BANK	SDN and Directive 1 of EO 13662. There is a wind down general license allowing certain transactions through March 26, 2022.	Asset freeze	EU capital markets restrictions	Asset freeze + Restriction on the issuances of securities	Yes

As of 1 November 2021, the largest banks in Russia by total assets were:

Sberbank
VTB Bank
Gazprombank
Alfa-Bank
PJSC Promsvyazbank
JSC Rosselkhozbank (aka Russian Agricultural Bank)
Credit Bank of Moscow
Bank Otkritie Financial Corporation PJSC
Sovcombank

The Russian state holds majority stakes in the top two banks, Sberbank and VTB Bank, which together account for more than half of the Russian banking industry's assets.¹¹

Russian Central Bank

The U.S., EU, U.K. and Japan have also placed restrictions on financial transactions involving the Russian Central Bank, which affects the reserves and assets of the Russian Central Bank, the Russian National Wealth Fund and Russia’s Ministry of Finance.¹² The U.K. restrictions allow exceptions where necessary to respond to humanitarian issues, to allow regulators to carry out their functions, to protect the U.K. financial system or to deal with “an extraordinary situation.”¹³

Russian Direct Investment Fund (RDIF)¹⁴

RDIF is on the SDN List in the United States and also subject to restrictions under EU Sanctions. The new EU measures prohibit investment, participation, or contribution to projects co-financed by the RDIF. This also applies to projects in which RDIF holds minority stakes. A grandfathering provision allows an exception, subject to Members States authorization, under such conditions as they deem appropriate, an investment participation in, or contribution to, projects co-financed by RDIF, after having determined that such an investment participation or contribution is due under contracts concluded before March 2, 2022 or ancillary contracts necessary for the execution of such contracts.

EU Currency Restrictions¹⁵

On March 1, 2022, the EU has imposed a broad prohibition on the sale, supply, transfer or export of Euro-denominated banknotes to Russia or to any natural or legal person, entity or body in Russia, including specifically the Government and Central Bank of Russia, or for use in Russia. Only very limited exceptions apply, such as personal use of natural persons traveling to Russia and for official purposes of diplomatic missions and posts which enjoy international immunities.

In addition, EU banks generally can no longer accept deposits over EUR 100,000 (in total) from Russian persons, entities or such that are residing in or established in Russia, though limited exceptions, some subject to prior authorisation, apply.

U.K. Currency Restrictions¹⁶

On February 28, 2022, the U.K. imposed a prohibition on certain correspondent banking relationships.

Under the new U.K. regulations, a UK credit or financial institution must not establish or continue a correspondent banking relationship with: (a) a designated person, (b) a U.K. credit or financial institution which is owned or controlled directly or indirectly by a designated person, (c) a non-U.K. credit or financial institution which is owned or controlled directly or indirectly by a designated person. A U.K. credit or financial institution is also prohibited from processing a sterling payment to, from or via a designated person, or a credit or financial institution which is owned or controlled directly or indirectly by the designated person, if it has reasonable cause to suspect that the payment is to, from or via a designated person. Processing a payment includes clearing and settling a payment. This applies to payment chains or third-party payments. U.K. entities may seek a license under the processing sterling payments restrictions for: (a) humanitarian assistance activity, (b) medical goods and services, (c) production or distribution of food for the civilian population, (d) diplomatic missions and (e) space activity.

On February 25, 2022, the U.K. also restricted Russian nationals from having deposits of more than 50,000 pounds in British bank accounts.

U.K. Prohibition on Port Entry¹⁷

On March 1, 2022, the U.K. imposed a restriction on Russian ships entering a port in the U.K. The regulations apply to: (a) a ship owned, controlled, chartered or operated by a designated person (e.g., a person who is designated under regulation 5), (b) a ship owned, controlled, chartered or operated by persons connected with Russia, (c) a ship flying the flag of Russia, (d) a ship registered in Russia, or (e) a specified ship. There are certain exceptions, including where access is needed by the ship in the case of an emergency.

Registration of ships in the U.K. are also prohibited for any ship owned, controlled, chartered or operated by (a) a designated person or (b) persons connected with Russia. Moreover, the U.K. may also terminate the registration of any ships (a) owned, controlled, chartered or operated by (i) a designed person or (ii) any person connected with Russia; or (b) a specified ship.

U.K. Sanctions To Target U.K.-based Insurance Providers

The U.K. announced on March 3, 2022 that it will bring in new sanctions to prohibit U.K.-based insurance and reinsurance providers from undertaking financial transactions connected with a Russian entity or for use in Russia.

The U.K. Government states that the aim of these new measures will be to:

Prevent Russian companies in aviation and space industry from accessing or making use, either directly or indirectly, of UK-based insurance or reinsurance services.
Severely limit access to the global insurance and reinsurance market.

U.K. officials stressed that “legally robust” mechanisms needed to be put in place first, but promised “more announcements in the days and week to come." Details have not yet been published.

U.K. Sanctions Lists Changes

On February 28, 2022, a new more searchable format was launched for the U.K. Sanctions List and the OFSI Consolidated List. Searches can specify financial sanctions targets under the Russian regulations and will also identify close matches for incorrect or partial names.¹⁸

Aviation Industry Restrictions

In addition to the U.S. export restrictions on aircraft exports and related financing (Bureau of Industry and Security of the U.S. Department of Commerce announced new rules under the Export Administration Regulations on February 24, 2022 that impose new license requirements for Russia to essential parts and components used in civil aircraft controlled under the Export Control Classification Number 9A991.d.), the EU has taken the following sanctions targeting the Russian aviation sector.

In particular, the EU's aircraft-related sanctions targeting Russia prohibit:

Direct or indirect export (regardless of whether the goods originate in the EU) of aircraft and aircraft parts/technology to any person in Russia or for use in Russia, as well as related technical assistance, brokering services, other services, financing or financial assistance.
Direct or indirect provision of insurance or reinsurance in relation to aircraft and aircraft parts/technology to any person in Russia or for use in Russia.
The provision of various aircraft-related activities to any person in Russia or for use in Russia, namely overhaul, repair, inspection, replacement, modification or defect rectifications (with the exception of pre-flight inspection) in relation to aircraft and aircraft parts/technology.

The restrictions set out under paragraph 1 above do not apply to contracts (or related ancillary contracts) established before February 26, 2022, provided they are executed prior to March 28, 2022.

On March 8, 2022 the U.K. issued new aviation restrictions:¹⁹

Preventing Russian aircraft overflying U.K. airspace or using U.K. airports (except in emergency) and allowing for detention of Russian aircraft.
Allowing the refusal or revocation of the registration of Russian aircraft in the U.K.
Applying existing Restricted Goods and Restricted Technology measures to aviation and space items.
Prohibiting the provision of insurance or reinsurance relating to aviation and space goods and technology to persons connected with Russia or for use in Russia.

U.S. Prohibition on Investments in the Energy Sector

On March 8, 2022, the U.S. issued a new EO prohibiting imports from and investments in the Russian energy sector. Specifically, it prohibits:

The importation into the U.S. of the following products of Russian origin: crude oil; petroleum; petroleum fuels, oils and products of their distillation; liquefied natural gas; coal; and coal products.
New investment in the energy sector in Russia by a United States person, wherever located.
Any approval, financing, facilitation, or guarantee by a United States person, wherever located, of any above transaction undertaken by a non-United States person.

It further prohibits any facilitation of a “transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.”

OFAC issued guidance to define “new investment in the energy sector” as a transaction that constitutes a commitment or contribution of funds or other assets for, or a loan or other extension of credit to, new energy sector activities (not including maintenance or repair) located or occurring in the Russian Federation beginning on or after March 8, 2022.

Moreover, it is important to note that the definition of “energy sector” is broadly defined to include the procurement, exploration, extraction, drilling, mining, harvesting, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, or transport of petroleum, natural gas, liquefied natural gas, natural gas liquids, or petroleum products or other products capable of producing energy, such as coal or wood or agricultural products used to manufacture biofuels, as well as the development, production, generation, transmission or exchange of power, through any means, including nuclear, electrical, thermal and renewable.

This new Executive Order has the potential to be interpreted broadly, effectively cutting off U.S. persons from involvement in Russia’s energy sector.

Summary

The Russia sanctions in the U.S., EU and U.K. are already significant and will continue to evolve, with further announcements anticipated in relation to the U.K. insurance industry and, at the time of writing, potentially extending to the U.K. and EU energy sector.

The primary resources for official announcements relating to the Russia financial sanctions are here:

Certain general license have been granted to wind down positions with certain Russian Banks.
Under OFAC’s “50 percent rule,” any entities that are owned, directly or indirectly, 50% or more by one or more listed entities are also automatically blocked for certain lists or Directives, even though the subsidiary entities may not be specifically listed on such a list or Directive.
The U.K. measures also prevent Russian companies from issuing transferable securities and money market instruments in the U.K., in addition to the U.K.'s existing capital market sanctions.
Switzerland has also extended its sanctions in force since 2014 to include the prohibition of new business relationships to 363 additional individuals and 4 additional corporate entities that have recently been targeted by the EU sanctions.
The prohibition on SWIFT transactions will come into force March 12, 2022. SWIFT restrictions include any entities directly or indirectly owned for more than 50% or more by these banks. The EU regulations cover any legal person, entity or body established in Russia whose proprietary rights are directly or indirectly owned for more than 50% by Sanctioned Bank.
Directive 3 under Executive Order (EO) 14024, "Prohibitions Related to New Debt and Equity of Certain Russia-related Entities” prohibits any transactions by U.S. persons, or within the United States, in any new debt of these entities that exceeds 14 days' maturity and also prohibits transactions or dealings in new equity of such entities. The 50% rule applies to this Directive.
Capital market restrictions prohibit new debt and new equity issued by Russian banks, companies and their affiliates, which include (1) directly or indirectly purchasing, selling, providing brokering or assistance in the issuance of, or otherwise dealing with transferable securities and money-market instruments with a maturity exceeding 30 days; (2) directly or indirectly purchasing, selling, providing investment services for or assistance in the issuance of, or otherwise dealing with transferable securities and money-market instruments with a maturity exceeding 30 days; and (3) directly or indirectly making or being part of any arrangement to make new loans or credit with a maturity exceeding 30 days. The definition of “transferable securities” has been expanded to include any securities “giving rise to a cash settlement determined by reference to transferable securities,” whereas previously it only included “securities giving the right to acquire or sell any such transferable securities.” Accordingly, this now captures certain cash settled equity and credit derivatives. On March 9, 2022, the EU further clarified that loans and credit can be provided by any means, including crypto assets, as well as further clarified the notion of “transferable securities,” so as to clearly include crypto assets.
All transactions with a U.S. nexus (U.S. persons/companies, items subject to the Export Administration Regulations or U.S. Munitions List, U.S. dollars or U.S. banks) prohibited with SDNs. The 50% rule applies to the SDN list. This includes an asset freeze.
Beginning 2014, EO 13662 Directives 1-3 prohibited transactions in debt of greater than certain days maturity, as well as dealings in new equity. EO 13662 Directive 4 prohibited the provision of goods or services for certain oil and gas projects. The 50% rule applies to these Directives.
Directive 2 of EO 14024 prohibits listed entities and their subsidiaries from maintaining correspondent accounts and payable-through accounts (CAPTA) in U.S. financial institutions or the processing of transactions by U.S. financial institutions by listed entities beginning March 26, 2022 (if listed at the time of publication) and 30 days after being listed for all subsequently listed entities.
https://home.treasury.gov/news/press-releases/jy0608
Specifically, the U.S. issued Directive 4 of EO 14024 which prohibits “any transaction” involving these entities, “including the transfer of assets to such entities or any foreign exchange transaction for or on behalf of such entities.” There is a general license allowing certain transactions with these entities through June 24, 2022.
The Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations 2022.
Council Regulation (EU) 2022/345 of 1 March 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine.
Council Decision (CFSP) 2022/346 of 1 March 2022 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine.
The Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2022.
The Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2022.
https://www.gov.uk/government/publications/uk-sanctions-list-change-in-format/uk-sanctions-list-change-to-the-lists-format
The Russia (Sanctions) (EU Exit) (Amendment) (No. 6) Regulations 2022.

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